The only way to stop Pyongyang's cycle of brinkmanship and extortion is to address the real problem -- South Korea.

By Edward LuttwakEdward Luttwak is a senior associate at the Center for Strategic and International Studies and the author of Strategy: The Logic of War and Peace.

April 12, 2013

Perhaps it is because I first went to school in Palermo, Sicily, that I have always found North Korea’s conduct entirely logical and wholly transparent. In both places, extortion by intimidation is routinely practiced, though much more subtly in Sicily.

The transparency is not due to anything revealed by North Korea’s string of rulers, from whom it is pointless to expect any change of policy — just because the previous one liked Japanese food and film stars, or because the current Kim spent time in a Swiss boarding school. The regime, past and present, continues to exceed even Stalin’s Soviet Union in its pervasive secrecy, but what remains in full public view is more than enough to explain its frenetically aggressive stance.

Even visitors closely escorted between North Korea’s very few approved sites cannot miss the vital clues. Take thePyongyang No. 1 Duck Barbecue Restaurant, the Pyongyang Number One Boat Restaurant, Pyulmori (a "Swiss" cafe), or the Austrian Helmut Sachers Kaffee — among the fewforeign-style eateries in the entire country besides Jilin-Chinese canteens in the border area. That one can eat palatable food in Pyulmori is phenomenal, but what is much more revealing is that both cafes serve authentic coffeeactually extracted from real coffee beans.

All of North Korea’s varied and extreme economic dysfunctions converge in its crippling shortage of foreign currency. Once the bulk of it is used to import military components, supplies, and subsystems from China (including the erector launcher vehicles for its ballistic missiles), very little foreign exchange is left. There is virtually none to import machinery to relaunch the country’s hopelessly antiquated manufacturing industry, which totters on with decades-old Soviet machine tools and even some Japanese equipment from the 1930s. There is no foreign currency to import contemporary medicines for the population, which must make do with North Korean knockoffs of Chinese knockoffs of Western generics. There is no foreign currency to import even the cheapest forms of starch — maize, sorghum, low-grade wheat — when crops fail, so deadly famines are recurrent.

Yet there is enough foreign currency to import the coffee beans distilled at PyulmoriandHelmut Sachers Kaffee. The few half-starved cows sometimes seen browsing in harvested fields explain the unappealing bulgogi offered in the fancy restaurants, though North Korean waters do better in supplying the octopus, squid, and fish offered at the floating seafoodhouse. But to procure a good espresso, the officials who allocate foreign currency — automatically the supreme power in the land — clearly found it necessary to set aside other priorities to import good roasted beans. Of course, none of this would explain anything if these were primarily tourist establishments operated to earn foreign currency. Stalin’s body was hardly cold when communist regimes opened up for business with hard-currency shops, hotels, restaurants, and bars (not lacking in hard-currency companionship), which today still comprise Cuba’s only successful industry.

But Pyongyang’s ultraprime eateries are not that. A few foreign tourists end up dining there by way of relief from grim hotel canteens, along with a handful of humanity-loving NGO workers (who never miss out on luxuries and thus frequent these places), but both groups are simply too small to matter. Most customers are North Koreans who fall into two entirely distinct classes. First: anxious, pinched, and pallid men (rarely women) in standard blue North Korean suits, visibly excited by the heady foreign luxuries on offer — members of midranking delegations from near or far that have wrangled or won access. The second class is the much better-dressed, better-fed singles and couples nonchalantly eating and drinking as if real coffee were an everyday pleasure for them. These are the likely parents of the children seen enjoying Pyongyang’s splendidly polychrome merry-go-round expensively imported from Italy. (And this being the land of the portly Kim Jong Un, these children of the rich and privileged are apple-cheeked and distinctly chubby in a land where most children are visibly underweight.) No, these nonchalant eaters are not the winners of the capitalist free-for-all, entrepreneurs, top corporate professionals, or sports stars; they’re high-ranking officials or military officers and their families, who support the Kim dynasty and win the perks of his favor.

A "palace system" drives the entire regime and its policies: To keep the Helots in isolated servitude cut off from the outside world, a stance of relentless bellicosity is kept up by the rulers year after year, decade after decade. Even though there has been no war for two generations, North Korean life is shaped by nonstop war propaganda, war censorship, martial law, and above all, a centrally planned war economy in which resources are allocated not exchanged.

But the inward projection of bellicosity is not enough, because the North Korean economy is so unproductive, especially in earning foreign exchange. To feed the palace system, North Korea must also extract payoffs from the outside world: some from enabling NGOs (food aid from which allows domestic food production to be used for army rations), some from the United States and Japan in exchange for Pyongyang’s nuclear promises (never kept), but most from the fellow Koreans of the South (whose payoffs are won by sheer intimidation). South Korean President Kim Dae-jung won the 2000 Nobel Peace Prize for his unprecedented reconciliation summit with Kim Jong Il, a moment when peace and even unification seemed imminent. Only later did the truth leak out: The summit had been purchased for $100 million in cash. Unsurprisingly, it led to nothing.

Unwilling to deter North Korea — which would require a readiness to retaliate for its occasionally bloody attacks and constant provocations, thereby troubling business and roiling the Seoul stock market — South Korea has instead preferred to pay off the regime with periodic injections of fuel and food aid, but most consistently by way of the North-South Kaesong industrial zone, in which some 80,000 North Korean workers are paid relatively good wages by South Korean corporations. The workers themselves receive very little of their salaries, of course, the majority of which gets funneled back to Pyongyang and makes up the North’s largest consistent source of foreign currency. Even under supposedly "hard-line" South Koreanpresidents, the Kaesong transfer has continued. It was not shut down when the North sunk South Korea’s Cheonan warship, killing 46 sailors; nor when the North opened artillery fire on a South Korean island, killing two soldiers and two civilians; nor when the North tested a nuclear device and launched a long-range ballistic missile. Even as the present crisis has unfolded, it was the paying South that feared an interruption of production at Kaesong, not the North, which reaps the benefits. And when media in South Korea noted with much relief that Kaesong was still open, the North Koreans promptly shut it down.

Having successfully extracted payoffs so consistently through threats and occasional attacks, the North is naturally at it again. Even though another nuclear test and the threatened launch of a mobile long-range ballistic missile appear imminent, a payoff from the South, not war on the Korean Peninsula, is the likely outcome. And Pyongyang knows this.

Meanwhile, South Korea has matched the North’s bellicosity with its own strat
egic perversity: It remains obsessed with an utterly unthreatening Japan and has been purchasing air power to contend with imagined threats from Tokyo as opposed to the real ones just north of the demilitarized zone. Seoul is simply unwilling to acquire military strength to match its vastly superior economy. Instead, it spends billions of dollars to develop its proudly "indigenous" T-50 jet fighters, Surion helicopters, and coastal defense frigates — alternatives for which could be much better, and cheaper, imported from the United States. Meanwhile, gaping holes remain in South Korean defenses (and thus we see the ridiculous spectacle of last-minute scrambling for missing equipment and munitions in the present crisis). And the cycle continues: Because the South allows itself to remain so vulnerable, it cannot react effectively against North Korea’s perpetual threats and periodic attacks. Instead, Seoul checks its bank account and gets ready for the next payoff.

It’s time for this to end. The United States cannot force the North to give up its bellicosity, but surely it can force the South to renounce its perversity. The price of continued U.S. protection should be the adoption of a serious defense policy, the closure of the Kaesong racket, and a complete end to cash transfers to the North, whatever the excuse. Pyongyang may still try to pick a fight, but at least this will eliminate the incentive to persist in this monstrous extortion strategy.